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27th June 2019 | 5 min |
The primary objective of insurance is to protect your family members and dependents against financial insecurities in your absence, and hence should be the cornerstone of a sound financial plan. While your insurance portfolio may comprise of number of products serving various life stage needs, it is term insurance that should really occupy the pole position.
Fiscal prudence calls for a large safety net that would help your family stay financially independent when you are no longer around. A term life insurance plan helps you achieve exactly that -- you get a substantial life cover at a nominal premium.
A 30-year-old non-smoking male can avail a life cover of Rs. 1 crore - over a period of 30 years - by paying nominal monthly premium of around Rs. 700 In case of death of the insured person within the policy term, his nominee would get the sum assured and with it, meet both present and future needs.
Stated simply, a term plan acts as a tool for income replacement for the family of the deceased. You can calculate the premiums applicable to you with the help of this calculator.
Today, liabilities in the form of loans are a reality for most Indians during their working years to provide for important life goals such as owning a home or providing for children’s education. The onus of repaying the debt would fall on your family should an untoward incident arise. Simply put, the family then (spouse or child) would need to repay the loan in your absence. This can be a challenge especially if you have been the sole breadwinner in the family.
This is where a term insurance policy comes to your rescue. Proceeds from the term plan can help repay the loan, thereby allowing your family members to become debt-free. Debts can be a cause of major financial stress, something that can affect other goals. However, a term insurance plan in your portfolio provides the financial safety net for your family.
If you are the only earning member in your family, your sudden absence can derail other critical life goals such as your children’s higher education or marriage. However, a term plan helps keep these goals on track.
The death benefit received from a term plan can be used to address these goals that might otherwise get compromised in the absence of the family’s chief bread-earner. The death benefit received from a term insurance plan gives the financial support to realise these life goals without anxiety and compromise.
Without a steady source of income, it can be difficult to manage even the regular expenses – rent, utility, grocery bills, school fees. In the absence of the family’s principal earner, the inability to meet these expenses can potentially disrupt your family’s lifestyle. However, with a term insurance plan, things can move on uninterrupted.
Today, most plans offer the choice for pay-outs that can be either lump sum or staggered. While with the former, the entire death benefit is paid at one go, the latter pays out monthly benefits over a period of time. One can choose to take part of the benefits as lump sum and rest as monthly income stream. While the monthly income can help meet regular expenses, the lump sum can either be used to pay off outstanding loans or be invested for long term goals. Monthly income stream instead of a lump sum helps the surviving family manage monies systematically. Taking out the entire benefit as lump sum and then running regular expenses from the interest earned on the amount deposited in a bank is an alternative but only for the financially savvy. While all benefits (including monthly income) paid directly by the insurance company are tax-free, the interest earned from a bank deposit would be taxable.
As is evident, a term plan secures your family’s financial interests in your absence. It helps your dependents maintain their standard of living and address all essential goals when you are no longer around.
At the same time, you have complete peace of mind, knowing that people close to you would not have to deal with monetary hardships should an adverse circumstance crop up. Before buying a term insurance plan, you should ideally compare quotes from multiple insurers, probe into their respective Claim Settlement Ratios as well as available riders in order to make an informed choice
Note that the earlier you buy a term plan in your life, the better it is considering it would command a lower premium.With each year that you delay insurance purchase, the premium jumps up. It is expected that one is healthier when younger and hence chances are that insurers would deem you a safer prospect which means you do not pay additional premium owing to age-related health concerns.
Tata AIA Life Insurance offers term insurance plans that take care of the financial needs of people at different life-stages. Check out our protection plans here